Greekonomics

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I've interviewed Greek leftist leader Alexis Tsipras once, on a street demonstration. He is, as all commentators say, very smart. Too smart to do something as dumb as take over the government of Greece at this juncture.

In any case, the unwillingness of the Greek communist party, the KKE, to participate in a Syriza-led left government means Tsipras will, like the leader of New Democracy, fail to form a coalition.

So the likely outcome of the week is a presidentially appointed technocratic government, which will rubber stamp measures needed to remain within the rules of the EU bailout, before a new election is called either in June or in Autumn.

What the Eurozone elite and political mainstream then hope is that Greeks "come to their senses", and after a couple of months go back to the traditional parties, New Democracy on the right, and Pasok on the left. Unfortunately this is based on a misunderstanding.

The European centre does not have a very good understanding of Greece for a reason: its only roots in Greece are the mainstream media and the mainstream politicians, whose credibility has collapsed (the Troika itself is, like all mainstream Greek MPs, mostly closeted behind shutters and security guards).

That is not to say the parties beyond the centre have any better handle on the situation: it is physically disorienting to be propelled to within two percentage points of political power when you have spent the last two years linking arms in the face of tear gas and police batons - and this is exactly the experience many of Syriza's new MPs have been through.

The best way to orient oneself in the Greek situation now is through a series of scenarios. In Scenario One, the voters do, indeed, swing back to New Democracy so that it gets into the mid-20 percent, and Pasok comes second. Then they have the numbers to form a government.

But that's where Greekonomics kicks in.

For the un-noticed problem with New Democracy (ND) is that it has never, in its heart, supported the Eurozone-imposed austerity plan. I have been told publicly and even stronger in private by its economic experts that the Troika plan, with its reliance on tax rises to obviate even deeper spending cuts, will not work.

The Greek centre-right would have preferred a much faster and steeper cut in public spending combined with tax cuts, and - in its head at least - much bigger and faster proceeds of privatization. That's why they wanted an outright mandate - to attack what they see as the vested interests of civil servants and public sector unions. Instead their vote collapsed.

And that's where you run into a problem with Pasok. Pasok still (just) has a mass base. Some of that mass base are the very workers and civil servants whose world would end if ND were able to unleash the programme it wants. Hence any New Democracy/Pasok coalition would fall apart, with the technocratic faction of Pasok claiming (with some justification) that ND was trying to renege on the Troika-brokered agreement, which includes a sharp and prolonged tax hike.

Can Greek politicians rescue the economy?

Scenario Two is that, having stood aloof from government in the aftermath of the 6 May vote, the left, Pasok and the Democratic Left (a split from Syriza historically associated with Eurocommunism) attempt to form a left government of national unity, relying on de-facto support, but not participation of Syriza and the KKE. This scenario is anathema to every one of the parties I just listed, but has a logic if things spiral out of control: it would probably need some big, historic, intellectual figure of the Greek left to figurehead it, and one of the salient facts in Greece is the absence of any kind of left-Caudillo figure.

Scenario Three is the formation of a right-of-centre coalition. This now looks very unlikely: New Democracy split over the bailout; LAOS - the right wing nationalist party - collapsed after participating in the pro-austerity coalition, and Golden Dawn is so extreme that it's unlikely to get any bigger without a complete collapse of social order.

None of these scenarios creates stable government for Greece; so what would have to change to bring the situation to a resolution?

One route out would be the EU effectively designing, from above, an escape route for the Greek mainstream parties - completely rewriting the terms of the second bailout to give Samaras or Venizelos something to come back with - a piece of paper - saying: we saved the country from collapse, again, and this time we really did get the Germans/French to shoulder the pain. This would most probably take the form of "Public Sector Involvement" - ie a writeoff of Greek debts to the ECB and IMF.

The future of Greece hangs in the balance

A second route out would be some form of soft, presidential coup (I am not advocating it!). That is, the parties effectively realizing that to be in power is to commit political suicide, connive in the prolongation of a presidentially-appointed technocratic government which takes the most contentious decisions on privatization, immigration, cuts etc. But that government would still be working to an EU/IMF designed script, and if the script leads to catastrophe then it simply opens the way to a decisive, populist swing by the electorate to the left or right. (In this regard, the experience of Hungary's technocratic government, which led to Viktor Orban, and the Carlos Mesa government in Bolivia, which led to Morales, are worth looking at.)

The problem is, time marches on. And the Greek economic story is not just a question of designing a strategy, it is an execution story: that is it relies on relentless pursuit of goals and targets - whether they're ND/Pasok goals or Syriza/KKE goals - by a civil service and a set of ministers who can actually rule. It will be very hard for a technocratic government to pull the levers of power because so much of Greek politics has been based on patronage.

So we are back to the same problem that has dogged Greece. It cannot stay in the Euro without abiding by the rules. And the rules, as currently designed, will force the economy into a downward spiral and destroy social cohesion. Unless the EU/IMF take some kind of initiative that allows some form of viable coalition to emerge to implement some kind of "Plan B" you will sooner-or-later have a debtor-led default on your hands and most likely a prolonged social conflict.

Comment number 86.

"Community subsidies of Greek agriculture are over €2.5 billion per year in addition to national funding of this sector," he said, adding that the sum represents 40% of Greek farmer's income and 75% of agricultural investment.

Comment number 84.

NikosP10th May 2012 - 7:37

Its the incompetent in charge, that affects the whole-duck ponds, moats bankers etc How many banks, councils etc in the UK had to be bailed out? The vast majority work hard and do their best to live their lives, it’s just that were all led by incompetent donkeys. It is Greece’s fault-no argument! tell that tho to the children who cant eat today because mum+dad hasn't been paid for 6 months

Comment number 81.

Raj10th May 2012 - 6:28

The politicians do not have anything to sell when faced with hard economic truths. It will have to be a technocratic government and perhaps a longer mandate to allow the parties to build their political capital, with people in the meantime

Comment number 80.

drek210th May 2012 - 6:19

What Merkel and the rest of the blind Eurozone elite wilfully ignored was that Greece is not Germany. There are different expectations and political systems. Therefore a superimposed blue print was never going to work, as is being amply demonstrated.

Comment number 78.

BevRoadNorth10th May 2012 - 5:23

All govts have overspent,its gone way beyond a 'bank' crisis.Public sectors are bloated,pensions unaffordable,but no politician can say,hamstrung by electoral considerations,just how harsh measures need to be,especially in welfarist,top-heavy public sector economies like UK/ Greece.Voters are selfish-so can democracies weather the crisis,if no electoral mandate is likely to sort things out?

Comment number 76.

Molewood610th May 2012 - 4:47

Greece cheated its way into the euro by cooking the books. Where were the Athens protestors then? At the same time, the ECB failed to make sure Greece was willing and able to behave as a decent euro user. Now it's come home to roost and Greece must carry a lion's share of the blame. What to do? 1. Evict Germany. 2. Offer other euro counties an exit. 3. Leave the rump euro area to sink or swim.

Comment number 75.

Nik_M10th May 2012 - 1:07

Syriza’s MP Euclid Tsakalotos doesn’t know his history. The first country to receive funds from the Marshall Plan was also the ONLY country that never repaid a single cent…Greece! Syriza might change history to suit their own argument, but my oh my I hope these idiots takes the Lion’s share of the next vote, such that history will come to haunt Greece and her people. And rightly so too!

Comment number 74.

youngexpat10th May 2012 - 0:37

Why is the catalyst for all of these problems called (as David Cameron et al speak) as a 'banking crisis? This is rubbish! This was a crisis caused,instituted, maybe even planned by greedy self serving ignorant bankers and investors who thought that the world owed them a living for actually doing nothing. To date not one banker has been prosecuted! Sorry, forgot, the bankers prop up the elite!

Comment number 72.

porscheman9th May 2012 - 23:09

I was fortunate enough to live in Greece for 10 years before they joined the EU. I now live in California (wish I was back in Greece.) I was totally against them joining the EU, as the only countries that benefit from it are France and Germany with large industrial bases. It was doomed to failure from the start, next will be Spain and Portugal RIP common sense.

Comment number 71.

Carl van Zijll de Jong9th May 2012 - 22:09

If the general public would start appreciating the Laws of Economics then there is a solution to all deficit issues and an economic meltdown. Every suggested solution, e.g. bail outs, austerity measures, based on the present monetary system will lead to further problems... “catch 22”. The whole present economic system is corrupt to the core. Google “The World Monetary Order to Come”.

Comment number 70.

All for All9th May 2012 - 22:04

quietoak@65'despair of Greece'

On many streets in many states 'read' despair

'Even' in UK & US we have mass-ignorance, rich & poor, of risk from Inequality

IF the 'Eurocrats' can persuade enough of Greek People truly to accept 'more equality at home', as a condition for 'more equality across Europe', then all of us will be closer to genuine Equal Democracy

Comment number 69.

Sasha Clarkson9th May 2012 - 21:59

Well done Paul - a stark and realistic analysis. The sins of Greece have been far less than the sins of the Third Reich. But post WWII Germany was treated with much more compassion than Greece is now being treated. There has to be an end to externally imposed MISERY - austerity is a weasel word - whose aim is to solve the Euro's problems not Greece's

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